First minister Jack McConnell is considering plans for Labour to ditch the Liberal Democrats and go it alone as a minority government after next year's election.

With tension increasing between the Holyrood coalition partners, McConnell is said to be strongly in favour of a radical alternative. Both the Greens and the Tories have indicated their willingness to support a minority administration on an issue-by-issue basis, with the latter describing the coalition as 'unprincipled'.

The Holyrood voting system, which combines first-past-the-post with proportional representation, makes it impossible for any single party to win an overall majority. As a result, in the first two terms - when stability was the priority - Labour relied on a power-sharing deal with the Lib Dems, agreeing on a common set of policies in return for a number of ministerial posts.

However, McConnell, as well as many in the Labour ranks, now appears to see minority government as an increasingly attractive option.

Margaret Curran, the Parliament Minister, recently visited New Zealand, where it is thought she was studying how minority rule works there.

McConnell said breaking free from the constraints of a coalition was a 'serious possibility'. 'We need to decide over the next four months whether stability is more important than the ability to put forward radical choices to the parliament,' he said.

If Labour emerges as the largest party next year, it faces three choices: another coalition with the Lib Dems; a broader coalition of three or more parties; or a minority administration. McConnell said a larger coalition was his least favoured option. A minority government would involve Labour presenting policies to parliament and hoping for enough votes to pass bills.

The idea was dismissed as 'superficially attractive' and potentially unstable by former Deputy First Minister Jim Wallace last month. But a source close to McConnell insisted it was being considered as a genuine possibility. He said the first term was about stability and the second about delivering policies. 'But in a third-term parliament the priority is not that same stability,' the source said.

McConnell and his closest advisers have apparently admitted that it would result in some Labour bills being voted down, but said they did not believe it would cause political chaos.

'If we were to put good bills before parliament and the other parties were to vote them down, they would pay the political price for that,' the source added. 'We would be able to say to the public: we wanted to do this or that, to reform education or health, and they voted against the changes.'

Two key factors will determine the composition of the next executive: the number of seats Labour wins and the contents of the Lib Dems' manifesto. If Labour holds most of its 50 seats, or increase them, it is likely to opt for minority rule.

McConnell has also identified 'deal-breakers' that would rule out a third-term coalition. These include Lib Dem plans to scrap council tax and replace it with a local income tax. Another key 'redline issue' concerns Labour's plans to create 'skills academies', where 14- and 15-year-olds go to learn trades rather than academic subjects, and 'science academies' for the brightest pupils.

'If it was a choice between another coalition with the Lib Dems or skills academies, then it's skills academies and a minority administration,' said the source.

A Lib Dems spokesman criticised the plans. 'All the evidence shows that the Lib Dems can be the largest party after May's election and that is what we're focused on,' he said. 'Unlike Labour and the SNP, we won't waste time speculating on the outcome before the people of Scotland have had their say.'